Oil Prices: The New Reality

Paul Horsnell, an analyst at London-based investment bank Barclays Capital (BCS ), says the markets are sending a message: “Whatever the long-term price is,” he says, “it is not $20 per barrel.”

Horsnell and other analysts believe a profound rethink about prices is occurring, with the market trying to figure what price will spur new production without killing demand. As a result, they say, the world has to prepare itself for a long stretch of oil at $50 to $60 or higher. There are plenty of reasons for the shift. New reserves from non-OPEC countries aren’t materializing. Countries with big reserves such as Iraq and Iran are either unable or unwilling to develop them. Spare capacity in the world’s oil fields is almost nonexistent, as demand continues to soar. G

From the Reader Comments:

Nickname: romco

Review: Spare capacity in Saudi is for sure wishful thinking. I have been working as a production engineer in the Middle East for the last eight years. In just this short amount of time I have been watching fields pass into and through maturity. All this talk of hedge funds and other financial trickery is nonsense. Underinvestment in capital? Absolute hogwash. We and other operators have been investing fantastic amounts in technologies and equipment just to keep things as they are. Bottom line….minus any significant new discoveries, oil prices are going to soar (and no, it’s not oil companies raping the little guy) just because at the end of the day, the resource is finite. I am not some oil company top dog, just a humble production engineer who deals with physical reality on a day to day basis.

Date reviewed: Jan 31, 2006 1:43 PM

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